Becg Final

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Prepared by: Riddhi Modi(B-28)

Dimple Thadhani(B-49)

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Theoretical Basis Agency Costs

Shareholders are the owners of joint-stock, limited liability company

and are its principals.

By virtue of their ownership, the principals define theobjectives of the company.

The management, directly or indirectly selected byshareholders to pursue such objectives, are the agents.

While the principals might assume that the agents willinvariably do their bidding, it is often not so.

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Two broad instruments that reduce agency costs andhence, improve ethical corporate governance, are

Financial and non-financial

disclosures, and

Independent oversight of

management, which consists of twoaspects the first relates to the role ofthe independent, statutory auditors

and the second to the board ofdirectors of a company

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Rights of Shareholders

A Shareholder of a Company

1. has a right to obtain copies of the Memorandum ofAssociation, Articles of Association and certain resolutionsand agreements on request on payment of prescribed fees(Section 39);

2. has a right to have the certificate of shares held by himwithin 3 months of the allotment;

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Rights of Shareholders (contd.)

3. has a right to transfer his shares or other interests in thecompany subject to the manner provided by the Articles of

the Company;4. has a right to appeal to the Company Law Board if the

company refuses or fails to register the transfer of shares;

5. has the preferential right to purchase shares on a pro-rata

basis in case of a further issue of shares by the Company.Moreover, he/she also has the right of renouncing all orany of the shares in favour of any other person;

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6. has a right to apply to the Company Law Board for therectification of the register of members;

7. has the right to apply to the Court to have any variation orabrogation to his/her rights set aside by the Court;

8. has the right to inspect the register and the index ofmembers, annual returns, register of charges, and register

of investments not held by the Company in its own namewithout any charge. He/she can also take extracts fromany of them;


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9. is entitled to receive notices of general meetings and toattend such meetings and vote thereat either in person or by

proxy;

10. is entitled to receive a copy of the statutory report;

11. is entitled to receive copies of the annual report of thedirectors, annual accounts and auditors report;


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12. has the right to participate in appointment of auditors andthe election of directors at the annual general meeting ofthe Company;

13. has a right to make an application to the Company LawBoard for calling annual general meeting if the Companyfails to call such a meeting within the prescribed time limits;

14. can require the directors to convene an extraordinarygeneral meeting by presenting a proper requisition as perthe provisions of the Act and hold such a meeting onrefusal;


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15. can make an application to the Company Law Board forconvening an extraordinary general meeting of thecompany where it is impracticable to call such a meeting

either by the directors or by the members themselves;

16. is entitled to inspect and obtain copies of minutes ofproceedings of general meetings;

17. has a right to participate in declaration of dividends andreceive his/her dividends duly;


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18. has a right to demand poll;

19. has a right to apply to the Company Law Board forinvestigation of the affairs of the Company.

20. has the right to remove a director before the expiry ofthe term of his/her office;


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21. has a right to make an application to the Company Law Board forrelief in case of oppression and mismanagement;

22. can make a petition to the High Court for the winding up of theCompany under certain circumstances;

23. has a right to participate in passing of a special resolution that

the company be wound up by the Court or voluntarily; and

24. has a right to participate in the surplus assets of the company, ifany, on its winding up.


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Working Group on the Companies Act

CIIs Committee on Corporate Governance

Kumar Mangalam Birla Committee

Recommendations Relating to Shareholders

Responsibilities of Shareholders

Shareholders Rights

The Naresh Chandra Committee

The Narayana Murthy Committee

Dr.J.J. Irani Committee Report on Company Law, 2005

Views of Various Committees on Shareholders Rights

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Working Group on the

Companies ActSet up by Government of India

Recommended many financial as well as non-financial disclosures

A detailed directors report on

- Directors remuneration and commissions

- List of directors relatives as employees or Board members

- Disclose interest of director in particular project

-Disclose details of loans given to directors

Other recommendations

No. of changes were introduced in the companies bill.

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CIIs Committee on Corporate

GovernanceCII has pioneered the concept of corporategovernance in India and is internationally

recognized name.

This code requires listed company to givethe following information

- high and low monthly averages of shareprices in a major stock exchange where the

company is listed for the reporting year

- greater details on business segments up to10% of turnover, giving share in sales

revenue, review of operations, analysis ofmarkets and future prospects

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Kumar Mangalam Birla

CommitteeThe committee made 25 recommendations, 19

of them mandatory

Recommendations Relating to shareholders

Responsibilities of shareholders

Shareholders Rights

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The Naresh Chandra

CommitteeTwo major issues the committee addressed and madeappropriate recommendations were

- The composition of audit committee

- Representation of independent directors on a

companys board

The committee further recommended

tightening of the noose around auditors by asking them to make anarray of disclosures.

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The Naresh Chandra Committee

contd

Asking the CEOs and CFOs of all listed companis to certifytheir companies annual accounts, besides suggesting

Setting up of quality review boards for the ICAI, ICSI, ICWAand a public oversight Board similar to the one in U.S

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The Narayana Murthy

CommitteeDirectors Appointment

Information like quarterlyresult of the companies

Shareholders/Investorsgrievance Committee

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Shareholders Rights and Postal

BallotsAlteration in Memorandum of association

Sale of whole or substantially the whole of undertaking

Sale of substantial investments in the company

Making a further issues of shares

Corporate restructuring

Entering into a new business

Variations in rights attached to class of securities

Matters relating to change in management

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Dr.J.J. Irani Committee Report on

Company Law, 2005

Power to Shareholders

-Owners of the company to operate intransparent manner

- Protect the rights of minority shareholdersand also to ensure investor protection

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SEBI in its guidelines to investors/shareholders,titled A Quick Reference Guide for Investors

published recently, makes it known that ashareholder of a company enjoys the followingrights :

Guide For Investors/Shareholders

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To receive the share certificates on allotment ortransfer as the case may be in due time.

To receive copies of the abridged Annual Report, theBalance Sheet, the Profit & Loss A/c and theAuditorsReport.

To participate and vote in General Meetings either

personally or through proxies. To receive Dividends in due time once approved in

General Meetings

To receive corporate benefits such as rights, bonus

etc., once approved.

Rights of a shareholder, as an individual

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To apply to Company Law Board (CLB) to call ordirect the Annual General Meeting.

To inspect the minute books of the General Meetings

and to receive copies thereof.

To proceed against the company by way of civil orcriminal proceedings.

To apply for the winding-up of the Company.

To receive the residual proceeds.

Rights of a shareholder, as an individual(contd.)

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Besides the above rights one enjoys as an individualshareholder, one also enjoys the following rights as a group ofshareholders:

To requisition an extra-ordinary General Meeting.

To demand a poll on any resolution.

To apply to CLB to investigate the affairs of the company.

To apply to CLB for relief in cases of oppression and/ormismanagement.

Rights of a shareholder, as an individual (contd.)

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As a debenture-holder, one has the right

To receive interest/redemption in due time.

To receive a copy of the trust deed on request.

To apply for winding up of the company if the company fails to

pay its debt.

To approach the debenture trustee with his/her grievance.

Rights of a shareholder, as an individual (contd.)

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Shareholders are responsible

To remain informed

To be vigilant

To participate and vote in general meetings

To exercise ones rights on ones own, or as a group.

Shareholders Responsibilities

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Definition: Investor protection can be defined by both

(i) the extent of the laws that protect investors rights, and

(ii) the strength of the legal institutions that facilitate law enforcement. Relationship Between Investor Protection and Corporate

Governance

How do Insiders Steal Investors Funds?

Rights to Information and Other Rights

Investor Protection

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Corporate Governance through Legal Protection of Investors

Impact of Investor Protection on Ownership and Control of Firms

The Impact of Investor Protection on the Development of

Financial Markets

Banks and Corporate Governance

Investor protection (Contd.)

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This Committee gave the following recommendations:

1. There is need for a specific Act to protect investor interest.The Act should codify, amend and consolidate laws and

practices for the purpose of protecting investors interest incorporate investment;

2. Establishment of a judicial forum and award ofcompensation for aggrieved investors;

N.K. Mitra Committee on Investors Protection

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3. Investor Education and Protection Fund which is under theCompanies Act should be shifted to the SEBI Act and be

administered by SEBI;

4. SEBI should be the only capital market regulator, clothedwith the powers of investigation;

5. The regulator, SEBI, should require all IPOs to be insured

under third party insurance with differential premium basedon the risk study by the insurance company.

N.K. Mitra Committee on Investors Protection (Contd.)

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6. SEBI Act 1992, to be amended to provide for statutory

standing committees on investors protection, marketoperation and standard setting; and

7. The Securities Contracts (Regulation) Act, 1956, to beamended to provide for corporatization and good

governance of stock exchanges.

N.K. Mitra Committee on Investors Protection (Contd.)

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Most of the investor complaints can be divided into three broadcategories:

1. Against Member-Brokers of Stock Exchanges

2. Against Companies Listed for Trading on Stock Exchanges

3.Complaints against Financial Intermediaries

Problems of investors in India

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Investor protection is a multi-dimensional function, requiringchecks at various levels, as shown below:

Company Level: Disclosure and Corporate Governancenorms.

Stock Brokers Level: Self regulating organization ofbrokers.

Law Enforcement for Investor Protection

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Stock Exchanges: Grievance redressal mechanismand Investor Protection Find.

Regulatory Agencies: Investors Grievances and Guidance Division of

SEBI

Department of Company Affairs

Department of Economic Affairs

Reserve Bank of India

Consumer Courts and Courts of Law

Law Enforcement for Investor Protection (Contd.)

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Apart from SEBI and DCA two other avenues available to theinvestor to seek redressal of his complaints are :

1. Complaints with Consumers Disputes Redressal Forums

2. Suits in the Court of Law.

Grievance Redressal Mechanisms

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SEBI failures:

Poor Tackling of Price Manipulation and Insider TradingIssues

Poor Conviction Rate

Need to Enhance its Manpower Skills

It should Simplify and Trim Regulations

It should Tone up Quality of Disclosures

It should solve Issues of IPOs and Mutual Funds

SEBIs poor performance and suggestions for

improvement

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Becg Final

Documents

Transcript of Becg Final